Legacy issues, client losses pull down WPP’s Q1 2019 revenues

WPP has reported revenue of £3.588 billion in the first quarter of 2019, up 0.9 per cent from the same period last year on a reported basis and -0.6 per cent on a constant currency basis. Like-for-like revenue was -1.3 per cent, compared with last year. Revenue less pass-through costs was £2.926 billion, down 0.7 per cent on a reported basis, -2.3 per cent in constant currency and -2.8 per cent like-for-like.

In Q1 2019, like-for-like revenue less pass-through costs in the Group’s advertising and media investment management sector was down 4.8 per cent, with the US down significantly, primarily due to the underlying legacy issues in the creative businesses and client losses in 2018. Media investment management showed strong growth in the UK, the Asia Pacific and Latin America. Data investment management was up slightly in the first quarter, with particularly strong growth in Asia Pacific, Latin America and the Middle East. The Group’s public relations and public affairs businesses were down 0.3 per cent, with strong growth in Western Continental Europe and the Middle East. Brand consulting, health & wellness and specialist communications was down 2.1 per cent, with health & wellness, in particular, under considerable pressure in the US following client losses in 2018.

Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe were the strongest performing regions, with like-for-like revenue less pass-through costs up 2.3 per cent. There was strong growth in Latin America, Central & Eastern Europe and South East Asia, with Australia and New Zealand more difficult. In Asia Pacific, Greater China and India, which account for almost half of the region, grew strongly, with Malaysia, Thailand and Vietnam more challenging. In Latin America, four of the Group’s top five markets showed particularly strong growth. In Central & Eastern Europe, all markets, with the exception of Russia and Hungary, were up.

North America, with like-for-like revenue less pass-through costs down 8.5 per cent, was the weakest performing region, due to continued pressure and the impact of assignment losses among automotive, pharmaceutical and FMCG clients in 2018. This performance, whilst disappointing, was in line with our budgets. The actions WPP has taken since September with its creative and healthcare agencies, alongside leadership changes, are intended to address the Group’s performance in the US.

In the UK, like-for-like revenue less pass-through costs was down 0.9 per cent, a slight decline on 2018’s full-year performance.

Western Continental Europe like-for-like revenue less pass-through costs were down slightly at -0.3 per cent. Belgium, Denmark, Finland, Netherlands and Turkey were up strongly, with Austria, Italy and Spain more challenging. Germany, the Group’s largest market in the region, was up slightly.

Commenting on the performance, Mark Read, Chief Executive Officer, WPP, said, “As anticipated, our first quarter trading update reflects the impact of certain significant client losses in 2018, in particular in the US. Although we face a challenging year, especially in the first half, I am encouraged by how well our people, agencies and clients are responding to our new strategic direction.”

Read maintained, “We continue to make good progress in implementing our three-year strategy to return WPP to sustainable growth,” and added, “Our expectations for the full year are unchanged.”

He further said that the newly formed agencies were showing initial signs of success in new business pitches. The most recent merger, Wunderman Thompson, has followed VMLY&R’s strong start by winning Duracell’s international creative account. BCW has brought in nearly $70 million in new business in its first year.

“As we have said before, it will take time to address the company’s legacy issues, but we are committed to taking all the actions necessary to position WPP for future success,” Read affirmed.

Average net debt in the first quarter of 2019 was £4.163 billion, compared to £4.875 billion in 2018 (at 2019 exchange rates), a decrease of £712 million. Net debt at March 31, 2019 was £4.624 billion, compared to £5.500 billion in 2018 (at 2019 exchange rates), a decrease of £876 million. This improvement is largely explained by the disposal of various non-core associates and subsidiaries in 2018 and the first quarter of 2019 (and one property disposal), which in aggregate realised £1.028 billion. No shares were repurchased in the first quarter of 2019.

In March 2019, the Group refinanced its $2.5 billion revolving credit facility, extending maturity to March 2024. The Group also repaid the £200 million 6.375 per cent bonds due in 2020 following a tender offer.